What does it mean to be competitive in a globalized economy? And how does that affect what countries do in research, education, trade, and regulation?
Innovation does not take place in a laboratory. It occurs in a complex web of activities that transpire in board rooms and court rooms, in universities and coffee shops, on Wall St. and on Main St., and it is propelled by history, culture, and national aspirations. Innovation must be understood as an ecosystem. In the natural world life might begin from a tiny cell, but to grow and prosper into a mature organism, that cell needs to be supported, nurtured, and protected in a variety of ways. Likewise, the germ for an innovation can appear anywhere, but it will mature into a real innovation only if it can grow in a supportive social ecosystem.
Although Flanders is already one of world’s most prosperous and productive regions, the government sees opportunities to enhance its performance. Situated in the northern part of Belgium, the Flanders region is a natural meeting point for knowledge and talent, attracted by its highly skilled population, splendid cultural heritage, outstanding quality of life, excellent research, and easy accessibility. Its capital city Brussels doubles as the capital of Belgium and the headquarters of the European Union (EU). Additional assets include an open economy, excellent transportation and logistical infrastructure, and EU funding for science and technology development. Flanders has a strong educational infrastructure of six universities and 22 non-university higher-education institutions. These institutions have been grouped into five associations (Leuven, Ghent, Antwerp, Brussels, and Limburg) to facilitate and consolidate the implementation of the Bologna process, which aims to coordinate higher education across Europe.
The country has taken some encouraging steps toward strengthening its science and technology capacity, but it retreats when it comes to providing adequate resources and following through on implementation. Like many nations, Mexico has been making an effort to increase its investment in R&D and in scientific manpower. But although Mexico’s investment in science has grown significantly in absolute terms during the past few decades, the country still lags far behind others. In 2004, nations that are part of the Organization for Economic Cooperation and Development (OECD) on average invested 2.3% of their gross domestic product (GDP) in R&D. Mexico’s R&D investment in 2004 was less than 0.4% of GDP, a ratio that has remained essentially constant during the past decade. Why has Mexico been so slow to invest in R&D? What are the implications of this? And what can be done about it?
Japanese and U.S. innovation policies have been co-evolving since the 19th century. The interplay of U.S. and Japanese innovation policy began in the mid-19th century when Commodore Perry sailed into Tokyo Bay in 1853. The Japanese witnessed the technological power of a modern navy and the strategic implications of government investment in technology development. Recognizing the need to enhance its technological capacity, Japan soon began what became a mainstay of its innovation policy, scanning the globe for technologies that it could import and use.
By making continuous and massive investments in human resource development and R&D, Korea has succeeded in building a unique innovation system. When Korea launched its industrialization drive in the early 1960s, it was a typical developing country, with poor resource and production bases, a small domestic market, and a large population dependent on foreign powers for national security. The economic situation was more than bleak: Korea’s gross domestic product (GDP) in 1961 was only .3 billion or dollars per capita. It was a mostly agrarian economy, with manufacturing accounting for just 15% of GDP. International economic interactions were very limited. In 1961, Korea’s exports totaled million, and imports 0 million.
Creativity, flexibility, and adaptation are the keys to success of this fast-growing giant. Because India is so large and so diverse and because change is occurring at such a rapid pace, it is impossible to talk about a single innovation policy. Conditions vary widely among technologies, among industries and among regions. For example, India is on par with global leaders in some technologies (nuclear power, space), well behind in other sectors (productivity of small and medium enterprises), and in a position to leapfrog into global leadership in some areas (tools for rural development). It should therefore come as no surprise that innovation policy is actually a rich mix of policies and strategies linked to specific conditions and goals. A comprehensive survey of Indian innovation activities is impossible, so I will provide snapshots of a few programs that illustrate the variety and careful customization of current strategies.
Although science and technology will continue to play a vital role in innovation, the critical ingredients for continued U.S. economic success are likely to come from other disciplines. The United States is blessed with an extraordinarily successful system for the generation and application of innovation, as evidenced by its world leadership over the past half century or more in developing and putting to use new technologies for commercial, civilian, and national security purposes. Firms in the United States have mastered wave after wave of new technologies, from aerospace and electronics to pharmaceuticals and nanotechnology. These fields of endeavor have been built on strong foundations of new knowledge and understanding of the physical, mathematical, and biological sciences and of engineering. They have benefited from the establishment over time of a highly supportive national innovation system (NIS). The combination of mastery of the scientific and engineering foundations and the smooth functioning of its NIS has enabled the United States to move effectively in little more than a century from an agricultural, to an industrial, to a postindustrial society.
To guide education policy and maintain its innovation leadership, the United States must acquire an accurate understanding of the quantity and quality of engineering graduates in India and China. Although there is widespread concern in the United States about the growing technological capacity of India and China, the nation actually has little reliable information about the future engineering workforce in these countries. U.S. political leaders prescribe remedies such as increasing U.S. engineering graduation rates to match the self-proclaimed rates of emerging competitors. Many leaders attribute the increasing momentum in outsourcing by U.S. companies to shortages of skilled workers and to weaknesses in the nation’s education systems, without fully understanding why companies outsource. Many people within and beyond government also do not seem to look ahead and realize that what could be outsourced next is research and design, and that the United States stands to lose its ability to “invent” the next big technologies.
Because the foundation for future success is a well-educated workforce, the necessary first step in any competitiveness agenda is to improve science and mathematics education. There is no single cause for the concerns being raised, and there is no single policy prescription available to address them. However, there is widespread agreement that one necessary condition for ensuring future economic success and a sustained high standard of living for our citizens is an education system that provides each of them with a solid grounding in math and science and prepares students to succeed in science and engineering careers.
Current proposals to stimulate U.S. competitiveness are necessary but not sufficient to meet the challenges posed by a rapidly evolving global economy and the aggressive policies of other nations. Competitiveness is the new buzzword in Washington, DC. Many public and private leaders proclaim that the United States faces a new and formidable competitiveness challenge. Nancy Pelosi and House Democrats unveiled their Innovation Agenda in late 2005. President Bush announced his American Competitiveness Initiative in the 2006 State of the Union Address. And Congress has introduced several major legislative packages addressing competitiveness. But even if Congress were to enact all of the proposed policies—a good thing—they would not go far enough to ensure the nation’s continued technological leadership. Part of the reason why rhetoric is not being sufficiently translated into action is that many people in and out of official circles simply lack a sense of urgency about the situation. That must change.
Aeronautics within NASA is too important to neglect in favor of space. But that is just what the federal government is doing. The nation’s 100-year preeminence in aviation is in serious jeopardy. So, too, are the medium- and long-term health and safety of the U.S. air transportation system. The peril stems from a lack of national consensus about the federal government’s role in civilian aviation generally and about the National Aeronautics and Space Administration’s (NASA’s) role in aviation technology development in particular. Aeronautics—the first “A” in NASA—is now vastly overshadowed in resources, managerial attention, and political support by the agency’s principal mission of space exploration and discovery. Indeed, most people have no idea that NASA is the leading, and essentially the only, agency that is organizationally and technically capable of supporting the nation’s leadership in air transportation, air safety, and aircraft manufacturing.
Economy-changing technologies often originated in government research. Are today’s federal programs sufficiently ambitious to catalyze the next big thing? The future health of the U.S. economy depends on faith: the faith that a new general-purpose technology will emerge that will enable the tech-savvy United States to maintain its pace of rapid productivity growth. In the 20th century, these technological breakthroughs—jet aircraft, satellite communications, computers—always seemed to emerge magically when they were needed. Why should we not continue to believe in the magic of human ingenuity?
The days of U.S. technological domination are over. The nation must learn to thrive through working with others. Almost daily, news reports feature multinational companies—many based in the United States—that are establishing technology development facilities in China, India, and other emerging economies. General Electric, General Motors, IBM, Intel, Microsoft, Motorola—the list grows steadily longer. And these new facilities no longer focus on low-level technologies to meet Third World conditions. They are doing the cutting-edge research once done only in the United States, Japan, and Europe. Moreover, the multinationals are being joined by new firms, such as Huawei, Lenovo, and Wipro, from the emerging economies. This current globalization of technology development is, we believe, qualitatively different from globalization of the past. But the implications of the differences have not sunk in with key U.S. decisionmakers in government and industry.
The United States needs to be preparing now for what it will do when the computer-driven new economy loses momentum. Recent economic trends, including a massive trade deficit, declining median incomes, and relatively weak job growth, have been, to say the least, somewhat disheartening. But there is one bright spot: strong productivity growth. Starting in the mid-1990s, productivity has rebounded after 20 years of relatively poor performance. Why has productivity grown so much? Why did it fall so suddenly in the 1970s and 80s? Is this latest surge likely to last? Understanding the answers to these questions goes to heart of understanding the prospects for future U.S. prosperity
The nation’s needs for supercomputers to strengthen defense and national security cannot be satisfied with current policies and spending levels. In November 2004, IBM’s Blue Gene/L, developed for U.S. nuclear weapons research, was declared the fastest supercomputer on the planet. Supercomputing speed is measured in teraflops: trillions of calculations per second. Blue Gene/L achieved on one computation 70.72 teraflops, nearly doubling the speed of Japan’s Earth Simulator, the previous recordholder at 35.86 teraflops. Despite Blue Gene/L’s blazing speed, however, U.S. preeminence in supercomputing, which is imperative for national security and indispensable for scientific discovery, is in jeopardy.
The U.S. government was a pioneer in supporting nanoscale research; now it must boost funding to maintain the nation’s leadership. The United States, which made a major early commitment to nanotechnology in 2000, has been the world’s research leader, but as the promise of nanotechnology has grown the government commitment has flattened. We are concerned that lukewarm support for nanoscale science and engineering (S&E) puts U.S. technological leadership at risk and might prevent the country from realizing the full potential of nanotechnology.
Congress must continue to support U.S. leadership in this field as a key component of future national prosperity. As a U.S. senator, I have championed several initiatives over the past several years to nurture U.S. leadership in innovation. Perhaps none was more exciting than sponsoring the 21st Century Nanotechnology Research & Development Act, which was signed into law by President Bush on December 3, 2003. Together with my hardworking friend and colleague, Senator Ron Wyden (D-Oregon), we were successful in launching the National Nanotechnology Program, which became the single largest federally funded, multiagency scientific research initiative since the space program in the 1960s, securing .63 billion over four years.
Cross-fertilization of ideas and techniques between economics and computer science is yielding fresh insights that can help inform policy decisions. Perhaps as little as a decade ago, it might have seemed far-fetched for scientists to apply similar methodologies to problems as diverse as vaccination against infectious disease, the eradication of email spam, screening baggage for explosives, and packet forwarding in computer networks. But there are at least two compelling commonalities between these and many other problems. The first is that they can be expressed in a strongly economic or game-theoretic framework. For instance, individuals deciding whether to seek vaccination against a disease may consider how infectious the overall population is, which in turn depends on the vaccination decisions of others. The second commonality is that the problems considered take place over an underlying network structure that may be quite complex and asymmetric. The vulnerability of a party to infectious disease or spam or explosives depends strongly on the party’s interactions with other parties.
Collaboration among government, industry, academia, and labor succeeded in the 1980s. That coalition must act again. The U.S. economy, seemingly a world-dominant Goliath in the mid- and late-1990s, now faces major structural challenges from a new cast of Davids. The nation confronts a host of new economic challengers led by India and China. The U.S. economy recently took an unprecedented path when it regained strength during 2003 and 2004 without creating growth in jobs. The manufacturing sector’s share of the economy continues to shrink. The growing service sector, once considered immune to global competition, now finds that advances in information and communications technology have enabled global competition in low-skilled service jobs and the beginning of competition in high-skilled service tasks.
To meet the challenge of rapid technological and economic change, we must continue to study and refine the U.S. intellectual property regime. The breakneck pace of innovation across many industries, the explosive developments in particular areas such as biotechnology and software, and the rapidly changing role of universities in the development and ownership of technology create challenges for the U.S. patent system. Fortunately, one of the system's strengths is its ability to adapt to the evolution of technology, and that strength has been particularly apparent in the past two decades. But to ensure that it continues to operate effectively, we need to evaluate the patent system from a broad perspective and continue to update it to meet changing conditions.
With many nations taking action to strengthen high-tech industry, the United States should take steps to maintain its critical leadership. The United States faces a growing threat to its leadership of the world semiconductor industry. A combination of market forces and foreign industrial policies is creating powerful incentives to shift new chip production offshore. If this trend continues, the U.S. lead in chip manufacturing, equipment, and design may well erode, with important and unpleasant consequences for U.S. productivity growth and, ultimately, the country's economic and military security. To address this challenge, U.S. industry and the government need to cooperate to determine their response.
The United States continues to face serious challenges in protecting computer systems and communications from unauthorized use and manipulation. In terms of computer security, the situation is worse than ever, because of the nation's dramatically increased dependence on computers, the widespread growth of the Internet, the steady creation of pervasively popular applications, and the increased interdependence on the integrity of others.
By the summer of 1991, there was no doubt that the Cold War was over and the United States was unchallenged militarily. But the nation's commercial high-tech industry was still facing a decade-old struggle to compete with innovative Japanese products of superior quality, lower cost, and faster time to market. How would the U.S. government respond? Would the shift from Cold War to hot competition lead to a national industrial policy that would enable the nation to secure the benefits of science?
TThe more things change, the more they stay the same" applies today as it did in the 1980s to the U.S. capability to preserve the nation's leadership in science and technology. In the mid-1980s, the main requirements for preserving U.S. leadership included the need to change the research system to pay more attention to and accom-modate the increasing need for multidisciplinary studies; the need to attract more students to science and engineering; the need to increase investment, including a doubling of the government's share of nondefense civilian basic research; and the need to leverage the federal support of that research by stimulating funding from industry and from state and local governments.
This government-industry partnership program has proven its success. Now Congress and the president should provide stable financial support. Elizabeth Downing is pursuing a dream. Her small company, 3D Technology Laboratories, which she started as a graduate student, is developing a radically new three- dimensional visualization and imaging system that may find application in a variety of fields, from internal medicine to national defense. Yet because of the risks involved, startup companies like hers often have a hard time finding private funds to develop their technologies. To Downing, one of the keys to her company's progress is a government-industry "partnership" award from the federal Advanced Technology Program (ATP). "It is absolutely the best way to go for a small company with high-risk technology," she says.
The nation must do more to give people the skills they will need in our evolving economy. Is there anything fundamentally "new" about the economy? With the benefit of hindsight, we know that predictions about the demise of the business cycle were premature. "New economy" booms can be busted. All companies, even the dot-coms, need a viable business plan and a bottom line to survive. Market demand is still the dominant driver of business performance; the "build it and they will come" supply model proved wildly overoptimistic. But the assets and tools that drive productivity and economic growth are new. The Council on Competitiveness's latest report, U.S. Competitiveness 2001, links the surge in economic prosperity during the 1990s to three factors: technology, regional clustering, and workforce skills.
We're beginning to understand what fueled growth in the late 1990s, but there is much remaining to be explored. The resurgence of the U.S. economy from 1995 to 1999 outran all but the most optimistic expectations. It is not surprising that the unusual combination of more rapid growth and slower inflation touched off a strenuous debate among economists about whether improvements in U.S. economic performance can be sustained. This debate has been intensified by the recent growth slowdown, and the focus has shifted to how best to maintain economic momentum.
ATP should be refocused to better fill a major gap in the nation's innovation system. The Commerce Department's Advanced Technology Program (ATP) has been the lighting rod of U.S. civilian technology policy during the past decade. Consider the program's short but volatile budget history. ATP was initially funded in 1990 at million and reached million by the end of the first Bush administration. In 1993, the new Clinton administration promptly tripled ATP's budget, with plans to boost funding to .5 billion, a level comparable to that of the Defense Advanced Research Projects Agency. Indeed, ATP was slated to be the civilian equivalent of that acclaimed agency.
The U.S. economy responded successfully to the challenges of the 1980s, but this is no time for complacency. Reports in the late 1980s painted a gloomy picture of U.S. industrial competitiveness. The report of the MIT Commission on Industrial Productivity, perhaps the best known one, opined that "American industry is not producing as well as it ought to produce, or as well as it used to produce, or as well as the industries of some other nations have learned to produce...if the trend cannot be reversed, then sooner or later the American standard of living must pay the penalty." The commission criticized U.S. industry for failing to translate its research prowess into commercial advantage.
Industry, government, and universities are engaging in ever more joint efforts; it's time to take stock. R&D collaboration is widespread in the U.S. economy of the 1990s. Literally hundreds of agreements now link the R&D efforts of U.S. firms, and other collaborative agreements involve both U.S. and non-U.S. firms. Collaboration between U.S. universities and industry also has grown significantly since the early 1980s-hundreds of industry-university research centers have been established, and industry's share of U.S. university research funding has doubled during this period, albeit to a relatively modest 7 percent. Collaboration between industrial firms and the U.S. national laboratories has grown as well during this period, with the negotiation of hundreds of agreements for cooperative R&D.
Information technology has yet to deliver on its promise of faster productivity growth. America's love affair with the new technologies of the Information Age has never been more intense, but nagging questions remain about whether this passion is delivering on its promise to accelerate growth in productivity. Corporate spending on information technology hardware is now running in excess of 0 billion per year, easily the largest line item in business capital spending budgets. And that's just the tip of the cost iceberg, which has been estimated at three to four times that amount if the figure includes software, support staff, networking, and R&D--to say nothing of the unrelenting requirements of an increasingly short product-replacement cycle.
The time has come to refine and strengthen the successful federal program to help small companies tap new technology. At the start of this decade, U.S. efforts to help smaller manufacturers use technology were patchy and poorly funded. A handful of states ran industrial extension programs to aid companies in upgrading their technologies and business practices, and a few federal centers were also getting underway. Eight years later the picture has changed considerably. Seventy-five programs are now operating across the country under the aegis of a national network known as the Manufacturing Extension Partnership (MEP). This network has not only garnered broad industrial and political endorsement but has also pioneered a collaborative management style, bringing together complementary service providers to offer locally managed, demand-driven services to small manufacturers. That approach contrasts markedly with the fragmented "technology-push" style of previous federal efforts. Most important, early evidence indicates that the MEP is helping companies become more competitive. But to exert an even more profound impact, the MEP needs to pursue a strategic, long-term approach to ensuring the vitality of small manufacturers.
The nation needs--and can have--a multifaceted bipartisan policy to promote innovation. One of the most contentious issues in the 1995-96 congressional session was the Clinton administration's technology policy priorities and programs. Although one might expect Republicans to support efforts aimed at improving the performance of U.S. companies, many conservatives opposed these programs as "corporate welfare," called for the abolition of the Commerce Department's Technology Administration (and the department itself ), and criticized many of the administration's high-profile R&D partnerships with the private sector.